DEMOCRACY UNDER THREAT: Property Rights Will Save Us

I turned off the lights at 2am Friday and prayed that when I woke up property rights and the rule of law would be secure. That may sound like an odd to some people, but the very future of my country, the Kyrgyz Republic, hangs on the answer to my prayer.

The day before, local police arrested around 100 people who had sought violently to shut down the Kumtor gold mine. For days they had blocked the only road leading to the mine, which is near the beautiful lake of Issyk-Kul. The protestors demanded the nationalization of mines and denounced the agreement with the owners. In addition, their confederates elsewhere took action to effect a coup d’etat. Our struggle for liberty and democracy is threatened.

The Kumtor Gold Company is 100% owned by Centerra, a Toronto-based firm, making it the largest Western-based gold producer in Central Asia. It is not solely-Canadian owned, by any means. In fact, the Kyrgyz state-owned firm KyzgyzAltyn is the largest single shareholder of Centerra, with about 33% of the shares. The share of Kyrgyzstan’s GDP due to Kumtor is around 12% and its annual contribution to the state budget is more than 20%.

On Thursday evening thugs had shut down the electricity substation that feeds the mine.

Thursday night an update had come over from Twitter. “Production is halted at Kumtor. No more talks about investments. We will live as we lived before”- tweeted Dastan Bekeshev, a member of parliament who spoke out against the shutdown.

When I woke up Friday morning, I saw that Centerra’s stock had dropped from $4.36 to $3.87. The vandalism and destructionism was hurtful to the investors, but even more so to Kyrgyzstan.

STATE OF EMERGENCY

Friday evening the police arrested the protesters and returned power to the mine. In the process 58 people, 13 of them are from law enforcement, were injured.

Kyrgyz President Almazbek Atambayev, who had maintained his silence until Friday, declared a state of emergency in the local district. He got to the point, from a politician’s view, “the criminal actions of the organizers and participants of this action jeopardized the implementation of the budget of Kyrgyzstan.”

Shutting down Kumtor would threaten a fifth of the state’s revenues, jeopardizing state pensions and the salaries of state employees.

Prime Minister Jantoro Satybaldiev chimed in by reminding the public that “We have a law that people can organize demonstrations, but they have no right to block the road.” Promises by Deputy Prime Minister Shamil Atakhanov during negotiations that no one would be arrested because of the blockages failed to stop the lawlessness. The protesters said that regardless of the outcome of the negotiations they intended again to shut down the high-voltage station supplying Kumtor. So they did. At 6.30pm on Friday about 500 people entered the station without hindrance, and shut down the power supply again. The mine is blacked out, as are other areas of the country supplied by the power station.

At the same time, in the Kyrgyz city of Jalalabad, the supporters of the Ata-Jurt party, which is widely considered support of the attack on gold mining companies across the country, captured the regional state administration and arbitrarily appointed their own governor, Meder Usenov.

The internet is on fire with discussion of how the real target of the violence against Kumtor is not Kumtor. It is our democracy.

Since 2005 the Kyrgyz Republic has witnessed two popular revolutions that overthrew Presidents Askar Akaev and Kurmanbek Bakiyev when they tried to seize autocratic powers and install their family members in positions of power. The third president Roza Otunbayeva, who was asked to serve after Bakiyev fled the country for Belarus, served her term and an election transferred the office peacefully to current president Almazbek Atambaev.

Former President Roza Otunbaeva has stated that the current events are part of a serious, well-thought-out attempt to overthrow the elected government and that the exiled would-be dictator – with his looted money –are behind the effort.

The impact on the economy is already severe. According to a statement from the company, “All mining operations have been suspended other than continuing operations to manage the ice and waste in the high movement area of the open pit. The milling facility has been shut down and is currently standby. Fuel austerity measures have been adopted at the mine. At the first opportunity, full-time and contract employees who are not involved in continuing operations will be taken from the mine.” In a low-income developing country, the losses are enormous.

“THE PEOPLE” AGAINST KUMTOR

Kumtor was discovered during the time of Soviet occupation of our country. But extraction of gold began only after the collapse of communism and the breakup of the USSR. The investors from abroad have faced bureaucratic nightmares, but have persisted. A saying at Kumtor is that producing gold is not easy, but it’s a lot easier than the endless inspections and paperwork.

In 2013 the Kyrgyz Parliament decided on the fifth revision of the agreement with Centerra. The last contract was signed in 2009 during Kurmanbek Bakiyev’s notoriously corrupt reign.

Kyrgyzstan’s economy minister, Temir Sariev, headed the state commission that investigated Kumtor for nearly six months. Among the demands of the commission are bringing Kyrgyz citizens into Kumtor’s top-management, doubling local contributions and increasing payments for “environmental support” from $300 thousand to $10 million. The Canadian partners do not understand the logic of changing the rules of the contract every third year. (I think the “logic” is clear enough; I think it is called a “shakedown” in English.)

Hundreds of mine workers were anxiously awaiting the outcome of the negotiations between the Kyrgyz Government and its Canadian partners. Then a third party appeared, calling themselves local residents. They initially demanded from Kumtor new hospitals and schools, which may be understandable, but later denounced the agreement in principle and started to call for nationalization, which suggests it was not “local residents” who were behind the move at all.

ANOTHER REVOLUTION?

Kyrgyzstan is the freest and most democratic country in Central Eurasia. We have struggled for our freedom in a rough land-locked neighborhood, surrounded by China, Kazakhstan, Uzbekistan, and Tajikistan. Two previous revolutions took place because of then-current authorities usurped power, but the Kyrgyz people would not stand for it.

Today anybody can form a political party, or conduct peaceful demonstrations as well as openly and frankly criticizing the parliament and the president. But that will not last if we do not defend property rights and the rule of law. Until we establish and protect clear property rights, we will always be subject to instability and attempts to seize power. Democratic freedom is our right and we have shown we will fight for it. But it will never be secure without secure property rights.

—

Author: Mirsuljan Namazaaly is Founder and Managing Director of CAFMI Research Center. June 6, 2013.